It has been quite a long while since the automotive industry is plagued by overwhelming worries. There is the ever-increasing gas price, global warming concerns, declining sales, currency issues, demand for fuel-efficient cars, labor concessions, and more. Just about any automaker could go poco loco envisioning the right strategies to employ in order to recover and bring the business back into the black.
This week is a vital week for the industry, especially for the domestic automakers and the United Auto Workers (UAW), their biggest union. The UAW and the Big Three, consisting of General Motors, Ford Motor Co. and Chrysler Group, formally kicked off what is believed to be the most important round of labor negotiations in the industry’s history.
After losing a combined $15 billion last year and shedding more than 80,000 hourly jobs, the companies are pushing for major concessions to close a $25-an-hour labor cost gap with their Japanese rivals. And signs are everywhere that the UAW is ready to profoundly change the way it does business in order to protect the 180,000 union jobs that remain, wrote Joann Muller of Forbes.
In retrospection, the UAW has reached milestone labor pacts at two bankrupt suppliers. At Delphi, the former parts subsidiary of GM, the UAW agreed to lower wages for new hires, while at Dana, the union agreed to shift health care liabilities off the company’s books and into a union-controlled trust fund. Both concepts are being discussed at the Big Three bargaining tables, along with proposals to allow temporary factory workers and the so-called “jobs bank.”
Concessions on these issues would indubitably help domestic automakers compete with the likes of the Toyota Motor Corp., Nissan Motor Co. and the Honda Motor Co. But even a contract written by the National Federation of Union Busters would not solve Detroit’s crises. Domestic automakers face a litany of problems that labor concessions just could not repair.
Analysts in the industry say that the domestic automakers are producing the wrong product lines at the wrong time. Detroit automakers are still heavily dependent on big trucks and SUVs, at a time when gas is above three bucks a gallon and Congress is threatening to pass tough new fuel economy standards. Domestic automakers sell 63 percent trucks and 37 percent cars. Foreign automakers, on the other hand, make 64 percent cars and 36 percent trucks for the Japanese.
“They’re racing to develop more fuel-efficient cars and crossovers, but new models take three to five years to develop, leaving domestic automakers flat-footed again, just as they were during the oil crises in the mid-1970s,” wrote Muller. “Even with more cars in the lineup, profits would suffer. Strategy consultant AlixPartners estimates a manufacturer earns $8,000 to $14,000 variable profit on each pickup it sells, but zero to $6,000 on each car.”
She added: “Detroit’s cars are vastly improved, but few Americans have discovered it. GM’s new Saturn Aura sedan, for instance, was 2007 North American Car of the Year, but it’s languishing on dealer lots. And did you know it comes in a hybrid, too? Probably not.” Saturn tail lights could not have highlighted the fact.
Detroit may have the biggest marketing problem in America: how to lure back a generation of car buyers that gave up on American cars in the ’80s, said Muller. GM, Ford and Chrysler have sworn off low-profit sales to rental car agencies, and their declining market share shows it. Detroit does not seem to have the most efficient solution.
The bottom line is, even if domestic automakers triumph in each labor concession, there is no trouble-free strategy to recuperate – there is no fast and easy way.